Opinion
Case No. 13-35124 Adv. No. 14-3089
06-10-2015
In re: PATRICK S. JONES ANITA JONES, Debtors MICHAEL MCDANIEL ET AL., Plaintiffs v. PATRICK S. JONES, Defendant
Copies to: Mary K. Soter, electronically served (Counsel for the Plaintiffs) Wayne P. Novick, electronically served (Counsel for the Defendant)
Chapter 13
Decision Granting in Part and Denying in Part Defendant's Motion for Summary Judgment
I. Introduction
Plaintiffs Michael and Steven McDaniel (collectively, the "McDaniels") filed a non-dischargability complaint against the debtor Patrick S. Jones ("Jones"). Jones has moved for summary judgment and, in the alternative, to dismiss.
II. Background
On December 26, 2013 Jones filed a joint voluntary petition with his wife under Chapter 13 of the Bankruptcy Code and a proposed Chapter 13 plan. The plan was subsequently confirmed and does not pay a dividend to non-priority unsecured creditors. The McDaniels were not included in Jones' original schedules, but Jones amended Schedule F to add the McDaniels as creditors on February 17, 2014 (est. doc. 22).
The court also takes judicial notice that Jones and Kim R. Jones filed a Chapter 13 bankruptcy petition in this court in 2007 but it was dismissed for failure to make payments in 2010. See Case No. 07-30096. The debts currently in dispute were never scheduled or apparently addressed in that case. Jones states he did not know his state court lawyer had withdrawn as his counsel and was not aware of the judgments at that time. He also states these judgments were not listed on a 2013 credit report. His former counsel indicates in an affidavit that she withdrew from the state court litigation in January 2004, but nevertheless sent a copy of the Steven McDaniel judgment to Jones at his last known address and that mail was not returned to her.
On July 2, 2014 the McDaniels filed a complaint seeking two separate liquidated debts to be found non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). The deadline to file such a complaint was April 14, 2014. Fed. R. Bankr. P. 4007(c). According to the complaint, Steven McDaniel holds a judgment against Jones for $35,010.15 and Michael McDaniel holds a separate judgment against Jones for $1,956.12. Both judgments carry interest at the rate of 4 % per annum since the date of the judgments, October 29, 2004. The litigation that led to the judgments apparently began in 2003 and the McDaniels' current counsel was also their counsel at that time. Subsequent evidentiary material submitted by the McDaniels demonstrates that these judgments were for violations of the Ohio Consumer Sales Practices Act. doc. 41 - plaintiff exhibit A.
Jones filed an answer generally denying the allegations and asserting, among other affirmative defenses, that the complaint was filed untimely and barred by Rule 4007. Based on an agreement between the parties, Jones amended his answer and pled a counterclaim alleging the McDaniels had violated the automatic stay. The counterclaim alleges that Jones "repeatedly advised" the McDaniels that he filed bankruptcy prior to the schedules being amended to include the McDaniels as creditors. The counterclaim asserts that, despite Jones having advised the McDaniels of bankruptcy filing, Steven McDaniel sent various emails to Jones, including ones threatening Jones' family, and the McDaniels also called Jones' family on several occasions. In addition, Jones alleges that McDaniels, without seeking relief from the stay, revived dormant judgments in state court that form the basis for the dischargeability complaint. Jones seeks actual and punitive damages.
Also on July 2, 2014, the McDaniels each filed a proof of claim. Proofs of Claim 35-1 and 36-1. The bar date for filing a proof of claim was May 12, 2014. Jones objected to both claims as untimely. estate docs. 56 & 57. The McDaniels responded that they lacked knowledge that Jones filed bankruptcy. estate docs. 60 & 61. Those contested matters remain pending.
On January 9, 2015 Jones moved for summary judgment under Federal Rule of Civil Procedure 56 and, in the alternative, to dismiss, but without a reference to any particular rule. Jones cannot file a Rule 12(b) motion to dismiss subsequent to an answer nor has he specifically requested that his motion be treated as a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). In addition, both parties have submitted evidentiary material relevant to all the pending issues. Therefore, the court is treating the motion solely as one seeking summary judgment under Rule 56.
Jones argues that he is entitled to summary judgment for the following reasons: 1) the McDaniels filed their proof of claims beyond the bar date and, therefore, they cannot proceed with this dischargeability adversary proceeding because they do not have an allowed claim in the Chapter 13 case; 2) the complaint was untimely filed and the McDaniels did not seek an extension to file it and therefore Rule 4007 requires that the complaint be dismissed; and (3) there is no debt to be found non-dischargeable because the state court judgments in question were dormant under state law on the petition date and their revival post-petition is void because the state court actions reviving those judgments constituted a violation of the automatic stay.
III. Jurisdiction
This court has jurisdiction pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (I) and (O).
IV. Summary Judgment Standard
The standard to address Jones' motion is contained in Federal Rule of Civil Procedure 56, which is applicable to through Federal Rule of Bankruptcy Procedure 7056 and states, in part, that a court must grant summary judgment to the moving party "if the movant shows there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In order to prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If the burden is on the non-moving party at trial, the movant may discharge its burden by showing that there is no evidence to support the nonmoving party's case. Id. at 325. Thereafter, the opposing party "must come forward with 'specific facts showing that there is a genuine issue for trial.' " Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citations omitted); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-51 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita, 475 U.S. at 587-88.
V. Analysis
A. Failure to File a Timely Proof of Claim in a Chapter 13 Does not Affect the Ability of the McDaniels to Prosecute a Non-Dischargeability Adversary Proceeding
Jones argues that, in a Chapter 13, a timely proof of claim is required to be filed by a creditor to pursue a non-dischargeability action. Even assuming the court ultimately disallowed either or both of the McDaniels' proofs of claim as untimely filed, the court disagrees that the dischargeability issue cannot proceed. The failure to file a proof of claim may prevent a creditor from receiving a distribution it would otherwise receive under a confirmed Chapter 13 plan. See United States v. Chavis (In re Chavis), 47 F.3d 818 (6th Cir. 1995) (late claims are barred from receiving distributions pursuant to Federal Rule of Bankruptcy Procedure 3002). However, the failure to file a proof of claim or the disallowance of an untimely filed proof of claim does not eliminate a creditor's right to pursue a non-dischargeability action on a particular debt in a Chapter 13. Gallick v. United States Dep't of Educ. (In re Gallick), 292 B.R. 830, 831 (Bankr. W.D. Pa. 2003); MMM Healthcare Inc. v. Quesada (In re Quesada), 2014 WL 1329264, at *3 (Bankr. P.R. Apr. 1, 2014).
Jones cites Border v. IRS (In re Border), 116 B.R. 588 (Bankr. S.D. Ohio 1990) for the proposition that a claim "provided for" under 11 U.S.C. § 1328(a) in a confirmed chapter plan is discharged upon the completion of the plan. Accepting this proposition of law for purposes of argument, nothing in that decision provides that a non-dischargeable debt is discharged under § 1328(a) because the creditor failed to timely file a proof of claim nor does it link the filing of a proof a claim to the right of a creditor to pursue a dischargeability adversary proceeding. See also Keith M. Lundin & William H. Brown, Chapter 13 Bankruptcy, 4th Ed., § 349.1, at ¶ 2, Sec. Rev. June 17, 2004, www.Ch13online.com ("If a (dischargeable) debt is provided for by the debtor's plan, the debt is discharged even if the plan pays less than all of the claim"; emphasis added). Section 1328(a)(2) includes an exception to discharge for any § 523(a)(2) debt, a change included within the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and that issue may be litigated regardless of whether a creditor files a proof of claim.
B. A Dormant Judgment under Ohio Law Does Not Require the Dismissal of a Dischargeability Adversary Proceeding
Jones asserts that the order reviving the state court judgments is void because the McDaniels failed to seek relief from the automatic stay before reviving their judgments. Therefore, according to Jones, the claim "does not exist," is "not valid" and, therefore, without a claim, "there is no issue as to its dischargeability."
The actions to revive the judgments appear to be void. Easley v. Pettibone Mich. Corp., 990 F.2d 905, 911 (6th Cir. 1993) (actions taken in violation of the automatic stay are "invalid and voidable and shall be voided absent limited equitable circumstances."). In addition, Ohio law provides that a dormant judgment may not be enforced and is of no legal effect. In re Stoddard, 248 B.R. 111, 116-17 (Bankr. N.D. Ohio 2000). In order to prevent the revival of a judgment, the debtor must prove that "the judgment has been paid, settled or barred by the statute of limitation." Herselden Plumbing Co. v. Justice, 1986 WL 3213, at *3 (Ohio Ct. App. March 13, 1986) (quoting Van Nover v. Eshleman, 14 Ohio C.C. (N.S.) 348, 349 (Ohio 1911), aff'd on other grounds 89 Ohio St. 48 (Ohio 1913); Columbus Check Cashers v. Cary, 962 N.E.2d 812, 817 (Ohio Ct. App. 2011) (citing Van Nover for the same principle). In this instance, it appears that the judgments were entered in October 2004 and became dormant in 2009.
Generally, a judgment may become dormant after five years:
If neither execution on a judgment rendered in a court of record or certified to the clerk of the court of common pleas in the county in which the judgment was rendered is issued, nor a certificate of judgment for obtaining a lien upon lands and tenements is issued and filed, as provided in sections 2329.02 and 2329.04 of the Revised Code, within five years from the date of the judgment or within five years from the date of the issuance of the last execution thereon or the issuance and filing of the last such certificate, whichever is later, then, unless the judgment is in favor of the state, the judgment shall be dormant and shall not operate as a lien upon the estate of the judgment debtor.Ohio Revised Code § 2329.07(A)(1) (emphasis added).
With certain limited exceptions, a judgment creditor has only 10 years to revive a judgment once that judgment has become dormant. Ohio Revised Code § 2325.18 (effective June 2, 2004). But assuming the McDaniels took no action after the judgments became dormant, the earliest time period the judgments could no longer be revived is October 2019. Post-petition, without relief from stay, the McDaniels revived the judgments. See Ohio Revised Code § 2325.15 (providing for the revival of dormant judgments).
Under prior law, a creditor had 21 years to revive a dormant judgment. Ohio Revised Code § 2325.18, in its present form, applies to the judgments in question because they were entered in October 2004.
In addition, the statute of limitation may be tolled by the bankruptcy filing. 11 U.S.C. § 108(c).
Assuming the actions of the McDaniels in reviving the judgments are void due to the automatic stay, the court will not dismiss this adversary proceeding on that basis. As noted, the only apparent defenses to the revival of a judgment within the period under which revival is permitted are payment (an assertion that the judgment has been paid), settlement (an assertion that the debt underlying the judgment has been settled), and the statute of limitation (an assertion that the statute of limitation for collection of the judgment bars collection of the judgment). Without such a defense, the underlying judgment may be revived and the underlying debt is not extinguished. The process for reviving an Ohio judgment and the period during which a judgment may remain dormant appear to be intended to protect title searchers from having to search for judgment liens beyond a defined period. See Thompson v. Slone, 589 N.E.2d 118, 120-21 (Ohio Ct. App. 1991) (interpreting Ohio Revised Code § 2325.17, noting that revival of a judgment does not revive a lien but allows for the creation of a new lien); Columbus Cash Cashers, 962 N.E.2d at 817 ("it is important to note that judgment creditors must take additional steps, subsequent to the revivor of judgment, in order to properly execute upon the property of the judgment debtor."). But even if a valid basis exists to deny the revival of the judgments in question, this court would not entertain a dismissal of this dischargeability adversary proceeding until such determination was made by an appropriate state court.
A dormant judgment under Ohio law cannot be enforced until it is revived but the underlying debt liquidated through the judgment is not extinguished upon the judgment becoming dormant. The debt still exists, but the judgment which liquidated that debt is "asleep" until revived and extinguishes any lien created prior to the dormancy of the judgment. See Geauga Savings Bank v. Nall, 1999 WL 960574, at *3 (Ohio Ct. App. Sept. 30, 1999) ("while dormancy does not remove or discharge the judgment, it does wipe out any lien created by the judgment."). Since the McDaniels' dormant judgments were still within the Ohio revival period at the time that Jones' bankruptcy petition was filed, the debts underlying those dormant judgments still existed under Ohio law and qualify as "claims" as that term is used in 11 U.S.C. §§ 101(5) and 502.
Since the issue is not presented in this case, the court need not opine on whether a claim may be allowed based upon a debt for which judgment has been taken, with the judgment not having been revived within the revival period prior to the bankruptcy filing.
C. Summary Judgment is Granted Against Steven McDaniel and in Favor of Jones on Account of the Complaint Being Untimely
Rule 4007(c) requires that a complaint under § 523(c) be filed "no later than 60 days after the first date set for the meeting of creditors under § 341(a)." Any extension of that time must be sought through a motion filed prior to the expiration of that time period. Fed. R. Bankr. P. 4007(c). In this instance, the meeting of creditors was scheduled for February 11, 2014 and, therefore, the last date to file a dischargeability action was April 14, 2014. See est. doc. 7. The McDaniels filed their complaint on July 2, 2014 and never sought an extension.
However, the deadline to file a dischargeability complaint covered by Rule 4007(c) is not jurisdictional. Nardei v. Maughan (In re Maughan), 340 F.3d 337 (6th Cir. 2003). The McDaniels have not made this argument formally but the court construes their argument under the doctrine of equitable tolling. In considering equitable tolling, the factors are "(1) lack of actual notice of filing requirement; (2) lack of constructive knowledge of filing requirement; (3) diligence in pursuing one's rights; (4) absence of prejudice to the defendant; and (5) a plaintiff's reasonableness in remaining ignorant of the notice requirement." Id. at 344. Equitable tolling is a defense to an assertion a suit is out of time and the burden is on the party seeking to invoke equitable tolling. Engleson v. Unum Life Ins. Co. of Am., 723 F.3d 611, 624 (6th Cir. 2013). Tolling is appropriate when "a litigant's failure to meet a legally-mandated deadline unavoidably arose from circumstances beyond that litigant's control." Graham-Humphreys v. Memphis Brooks Museum of Art, 209 F.3d 552, 560-61 (6th Cir. 2000). Therefore, the court will consider whether equitable tolling prevents summary judgment.
Jones argues that by failing to file a motion to extend the deadline under Rule 4007(c), the court must find it untimely without any further analysis. Federal Rule of Bankruptcy Procedure 9006(b)(3) does provide that an enlargement of time under Rule 4007(c) is only permitted to the extent that rule provides. Rule 4007(d) allows an extension for cause but only prior to the time having expired. However, the Panel in Maughan allowed the court to extend the deadline under § 105(a) by applying equitable tolling. See also In re Issacman, 26 F.3d 629 (6th Cir. 1994) (Rule 9006(b)(3) does not prevent a court from using its equitable powers in accepting an untimely filed complaint). The court construes McDaniels' argument in opposition to Jones' motion for summary judgment as being based upon the Sixth Circuit's Maughan analysis.
As noted in In re Doyne, 520 B.R. 566, 571 (B.A.P. 6th Cir. 2014), it has been argued that Maughan was effectively overruled by Pace v. DiGuglielmo, 544 U.S. 408, 125 S. Ct. 1807 (2005). In Pace, the Supreme Court found that a litigant seeking equitable tolling bears the burden to establish that he has pursued his rights diligently and some extraordinary circumstance stood in his way. The result is the same under either standard so the court declines to address whether Pace represents the standard for equitable tolling in these circumstances.
In his affidavit, Steven McDaniel focuses on an email he sent Jones on March 4, 2014:
Just getting in from my honey moon and I get a return letter from ur attorney. I can forward that to ur mom, ur brother or ur ex wife.. Since that's the addresses I have.. There is no reason to send this info to a bankruptcy attorney when it's not a bankruptcy issue.. So to get to the point what's your address.. So it can get forwarded to youdoc. 28 - attachments. Steven McDaniel explained in his declaration that he said there was no reason to send anything to a bankruptcy attorney at that time because "he did not even know that [Debtor] had filed bankruptcy" and, continuing with surprising candor, Steven McDaniel further explained that he was trying to scare Jones into paying the debt. doc. 41, plaintiff exhibit B. Accepting this explanation for purposes of argument, Steven McDaniel ignores the email communication that occurred just days later. See attachments - doc. 28. On March 9, 2014 at 11:52 p.m., Jones told Steven McDaniel by email that "I already have the paperwork from Highland Court and bankruptcy has been filed (italics added). The Sheriffs department has already been contacted. This debt no longer exist. Please quit harassing my FAMILY I will press charges if this continues." Shortly thereafter, at 12:25 a.m. on March 10, 2014, Steven McDaniel responded: "Too bad bankruptcy can't be filed on it .. If your able to read it says to stay away from any ohio court ! I can't help you man up and face your faults .. But good luck with that !." (italics added).
This colorful exchange shows that Steven McDaniel was aware or should have been aware of Jones' bankruptcy filing no later than March 10, 2014 and had more than sufficient time to file a dischargeability adversary proceeding or timely request an extension by April 14, 2014. Even if he did not believe Jones, he was on inquiry notice and it was his obligation to determine whether a bankruptcy had indeed been filed. Steven McDaniel claims in his declaration that he "received his first notice that [Jones] had filed bankruptcy was on May 1, 2014 when he received the email from Wayne Novick." doc 41, plaintiff exhibit B. However, the record is plain that Steven McDaniel was aware or should have been aware of the bankruptcy no later than March 10, 2014.
Since Steven McDaniel had notice or actual knowledge the filing of the bankruptcy petition on March 10, 2014 and because the adversary proceeding could have been timely filed by the deadline of April 14, 2014, Steven McDaniel's complaint against Jones must be dismissed under the statute of limitation in Rule 4007(c). Steven McDaniel had a reasonable time period to either timely file his complaint or seek an extension.
Steven McDaniel also appears to focus on his lack of formal notice from the Clerk or Jones as excusing his failure to act. However, lack of formal notice does not excuse his failure to act upon having notice of the bankruptcy petition. See Grossie v. Sam (In re Sam), 894 F.2d 778 (5th Cir. 1990) (creditor had actual knowledge of the case necessary to protect his rights); Lompa v. Price (In re Price), 871 F.2d 97, 99 (9th Cir. 1989) ("The fact that [the debtor] failed to list [the creditor] did not relieve [the creditor] of his obligation to take timely action to protect his claim." Technical requirements with the 30 days' notice by the court under Rule 4007(c) is not required and the creditor's claim is time-barred.); Harper v. Burrier (In re Burrier), 184 B.R. 32 (Bankr. N.D. Ohio 1995) (absent evidence that the creditor did not receive inquiry notice, plaintiff's complaint must be dismissed). See also Rowe v. Steinberg (In re Rowe), 253 BR. 524 (E.D. Mich. 2000) (creditor had actual notice when debtor's attorney informed creditor's attorney of the bankruptcy and were bound by the 60 day statute of limitation in Rule 4007(c)); In re Spears, 2012 Bankr LEXIS 1183 (Bankr. S.D. Ohio Mar. 6, 2012) (creditor did not receive court notice of the bankruptcy but her counsel was noticed by a suggestion of bankruptcy in state court 81 days before the deadline under 4007(c). The creditor's dischargeability claims were dismissed.).
For all these reasons, summary judgment is granted against Steven McDaniel and in favor of Jones because the complaint is out of time pursuant to Rule 4007(c) and equitable tolling does not excuse Steven McDaniel's untimely filing.
D. A Material Issue of Fact Exists as to Whether the Complaint is Timely as to Michael McDaniel and, Therefore, Summary Judgment is Not Appropriate as to Him
The facts surrounding Michael McDaniel are somewhat different. The record is unclear as to any direct communication between Jones and Michael McDaniel prior to the bankruptcy petition having been filed and whether he received any other notice of Jones' bankruptcy prior to expiration of the time for filing a complaint objecting to the dischargeability of the debt owed to him. In his declaration, Michael McDaniel states he did not receive any notices from the bankruptcy court prior to October 16, 2014 and that the amendment to Schedule F made in February 2014 adding him as a creditor listed an address, 13376 St. Rt. 134, Martinsville, Ohio, that he had not used since 2005.
Jones refers to phone calls from the "McDaniels," but does not distinguish between Steven McDaniel and Michael McDaniel. See doc. 28, Jones' affidavit. In any event, there is no evidence in the record of any specific communication between Michael McDaniel and Jones or his family and Michael McDaniel appears to dispute Jones' allegations about such communications.
In addition, McDaniels' counsel indicates in her declaration that she represented them in the state court litigation in 2003 and that her business address and phone number have not changed in 36 years. doc. 41, exhibit C. Nevertheless, she indicates that she did not receive a request for the McDaniels' addresses nor did she receive a "copy of a bankruptcy filing" prior to reviving the dormant judgments in state court. Id.
Overall, the record is insufficient to grant summary judgment to Jones on Michael McDaniel's claim of non-dischargeability. A material factual dispute exists about whether Michael McDaniel learned of the bankruptcy from Steven McDaniel (or otherwise) in sufficient time to file a timely adversary proceeding. The record does show that Michael McDaniel was not served any bankruptcy documents by the Clerk until the amended Schedule F was filed (estate doc. 22) and, as noted, a dispute exists as to whether the addresses provided for the McDaniels in that amendment were correct or current. See Michael McDaniel declaration - doc. 25.
Michael McDaniel filed a change of address on March 13, 2015 and listed his new address as 5969 Springboro Pike, Dayton, Ohio. --------
VI. Conclusion
For all these reasons, Defendant Patrick Jones' motion for summary judgment is granted as to Plaintiff Steven McDaniel and denied as to Plaintiff Michael McDaniel.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: June 10, 2015
/s/ _________
Guy R. Humphrey
United States Bankruptcy Judge Copies to: Mary K. Soter, electronically served
(Counsel for the Plaintiffs) Wayne P. Novick, electronically served
(Counsel for the Defendant)